Why have financial values come to be considered more important than human ones?
In a short walk back into economic history, Mark Carney (1) points out that economists in the 19C did not view economics as separate from society. In the often cited but rarely read (myself included!) “The Wealth Of Nations” by Adam Smith, the concept of “ The Invisible Hand” has become a by-rule for the legitimacy of free market economics. This ignores his less well known work “Theory of Moral Sentiment” which warns against divorcing economic capital from social capital. Markets are living institutions embedded in the culture of the day.
In the first Reith lecture, Mark Carney agrees that “the market knows best” principle has merit as an organizing framework for competition but when it reaches into the fabric of society and family life, he advocates looking at what lies underneath this market mantra. He believes it has led us, unwittingly, to confusing value with price; we largely ascribe value to something only when a monetary exchange takes place. In sum price equals value. Mark Carney argues that society has come to embody Oscar Wilde’s aphorism: “Knowing the price of everything but the value of nothing.”
Covid is a stark illustration of how this can go too far; we now clearly see the distinction between value and price for key workers.
Climate change is making us value the rainforest, clean air and water, all elements with no ascribed market price but clear value.
This got me thinking, Simon Kuznets, won the Nobel prize for his part in creating the formula to calculate GNP (Gross National Product). GNP measures the market value of all goods and services produced within a country and was first applied during the 1930’s recession in the USA. Simon Kuznets is reputed to have nearly refused to accept the Nobel prize for his work in 1971 as he was horrified that we only calculated the “quantity” or monetary value of any activity contributing to GNP and not the “quality” or value of factors contributing to a country’s GNP such as education, volunteering, home care, mostly synonymous with quality and not price. Growth can come at the wrong price.
Dante asks a similar question in 14th century Florence which was in midst of an economic boom with the creation of new credit instruments and merchant banks. He was troubled by the practice of creating money from money and the effect new money was having on society (2) Sound familiar?
Mark Carney’s second Reith lecture centres is on the financial crisis of 2008. As we know Dante kept a special place in Hell for bankers. More to follow next time….
Sarah Lavers- My Financial Voice 25th January 2021
(1) Mark Carney’s Reith 2020 Lectures 2/12/2020. Available at: https://www.bbc.co.uk/iplayer/episode/p0900t1x/the-reith-lectures-2020-mark-carney-how-we-get-what-we-value-lecture-1-from-moral-to-market-sentiments
(2) Dante 2021 - Episode 2. Katia Adler BBC sounds 18th January 2021. Available at: https://www.bbc.co.uk/sounds/play/m000rd19